Is the global economy prepared for a permanent oil shock?

Key takeaways:

• Oil and gas markets remain concerned rather than panicked, with prices reflecting a more pessimistic outlook amid fears of further escalation between the US and Iran.

• Despite the largest disruption in oil market history, prices remain relatively contained, with a substantial geopolitical risk premium that could rapidly unwind following a lasting peace agreement.

• Earlier predictions of oil reaching $200 per barrel have not materialised, reflecting decades of investment in renewable energy and diversified supply sources, although resilience comes at a considerable cost.

• Oil markets tend to undergo structural changes following major crises, with stronger competition expected following the UAE’s exit from OPEC and potential investments in Venezuela, Libya, Iran and US shale.

• Higher oil prices are already affecting demand, encouraging consumers to reduce consumption and, in some cases, accelerate the shift from gasoline vehicles to electric alternatives.

• The worst case scenario remains a widening of the conflict that draws additional regional players into hostilities, potentially triggering more severe disruptions to global energy markets.